Thursday, May 1, 2014

Cleveland Massacre: The Rise of Standard Oil

In winter of
1871, a collusion was form between the railroads and the oil industry. As the
two began to execute their devious plan to corner the railroad and oil industry
under the name of South Improvement Company, the public, especially the press,
protested against the monopolistic intentions of the group. As a result, the
South Improvement Company disappeared with the winter. However, when spring
bloom in 1872, so as a new powerful company also appeared, a bigger and
stronger company of the oil mogul John Rockefeller, Standard Oil.

The
enlargement of Standard Oil in 1872 was a result of a massive buyout plan
dubbed the Cleveland Massacre by the Robber Baron, John Rockefeller.
Rockefeller used the South Improvement Company in order to gain huge leverages
in making smaller oil refineries to either join or be bought out by the oil
company.

The
Cleveland Massacre was the second plan of Rockefeller to corner the oil market
of the United States of America. During the early 1870’s near the oil regions
of Pennsylvania, numerous oil refining companies competed with each other. The
massive competition for the black oil made pricing volatile. Some companies
were willing to give unprofitable prices just to get an edge on the
competition. Rockefeller, having a messianic thought of himself, saw the
competition as wasteful. His idea was that in order for the full potential of
oil to be achieve, the competition must be stop. And so, he saw Standard Oil as
the way to unite the whole oil refining industry.

Rockefeller
first saw his plan to be realized with a cartel between the oil companies and
the railway companies. On December of 1871, the president of the Pennsylvania
Railroad Company proposed a scheme that would allow some railroad and oil
players to tip the balance of the scale into their favor. And so in 1872,
a charter was signed for the creation of the south Improvement Company.

The
Company was heavily predatory in its nature. Three major railroads, the
Pennsylvania, New York Central, and the Erie would increase freight rates for
non-member companies. On the other hand, rebates on the rates would be given to
member oil companies, most of which were already under Rockefeller. In addition
to discounts in the freight rate, the oil companies would receive percentage from
the profits that would be crated from the high freight rates charged to the
non-member oil companies.

If
the plan was carried out, it would have killed competition, however, fate had
other plans. Words of the scheme got out of the press. A wild rampage of the
public against the cartel ensued. Rockefeller was alarmed that his dreams of
strengthening the oil industry under Standard Oil would not materialize. He
decided that if the South Improvement Company would collapse before its full
potential to be unleashed, he would just have to choose plan B.

His
plan B involved a massive buy out of many competitors in the industry. Between
February and March of 1872, while the public was busy bashing the South
Improvement Company, Rockefeller moved in for the kill.

Rockefeller
showed his ruthlessness in order to get what he wants. He used fear and
intimidation in order to convince competitors to be bought by Standard Oil. He
harassed oil companies by cutting storage containers, after Rockefeller bought
barrel makers during the 1860’s. He also used the South Improvement Company as
leverage to incite fear to the companies. He was saying that if they were not
going to sell to Rockefeller, they would be devoured by bankruptcy caused by
high transport rates. But alongside with fear, he also used bribery in order to
persuade some companies. He used stock shares and positions to the Standard Oil
once they allowed to be bought by Standard Oil. An example was John Archbold
who became a leader of independent oil companies but then became a high
official at Rockefeller’s company after selling out the independent players.

The
result of Rockefeller’s negotiation became visible after March. 22 out of his
26 competitors were bought by Rockefeller. Among his victims was a company owned
by the father of Ida Tarbell, a journalist that would criticize Rockefeller
throughout her life. The cutting down of competition in Cleveland was dubbed by
the press as the “Cleveland Massacre.”

Following
the Cleveland Massacre, the expansionist program of Rockefeller continued.
Refineries in Pittsburgh, New York, and New Jersey fell in the hands of
Rockefeller. All in all 53 refineries became under Standard Oil. And with the
though eyes of Rockefeller for efficiency, he closed down 22 unprofitable
refineries. By 1880’s Standard Oil controls 80% of the North American oil
market.

Another
result of the Cleveland Massacre was the stabilization of oil prices. Prices
during the entry of the 1870’s were just about 1.5 cents. By the end of the 1870’s
prices were playing at .5 cents.